Call for clarity over compliance officers that all firms need to appoint this year

By Legal Futures

16 February 2011

Garlick: many unanswered questions

The Solicitors Regulation Authority urgently needs to provide more guidance on the role of the compliance officer for legal practice (COLP), which every law firm will be required to have from October, a leading legal regulation specialist has warned.

Michelle Garlick, a partner at Weightmans in Manchester, said several questions need answering, not least the extent to which the SRA will enforce personal responsibility against the COLP.

Many firms remain unaware that they will have to appoint a COLP (as well as a compliance officer for finance and administration) when the new Solicitors Handbook comes into force on 6 October.

As currently proposed, the COLP must be a lawyer authorised in relation to at least one reserved legal activity, and be of sufficient seniority and in a position of sufficient responsibility to fulfill the role. They must take “all reasonable steps” to ensure the firm’s compliance with the rules and report any failure to comply “as soon as reasonably practicable”.

Ms Garlick said that while the SRA’s approach to the role “has not really been properly explained”, the current guidance notes indicate that the COLP’s personal responsibility will not relieve the management from responsibility.

“Whilst it is certainly possible that a COLP could be disciplined, he or she is unlikely to be made the scapegoat by the SRA,” she said. “Indeed, if the SRA approached it in any other way and held the COLP solely liable, no one would be prepared to take on the role. It is, however, clear that the SRA regards the COLP’s role as being more than simply the conduit between the firm and the SRA.”

She said there needs to greater clarity for COLPs to reassure them about this.

Last year, Law Society chief executive Des Hudson said the uncertainly around the compliance roles may mean that the Law Society stands behind the individuals taking them.

A number of other practical questions arise, Ms Garlick continued:

What does “take all reasonable steps to ensure compliance” mean in practice?

What if the COLP makes a recommendation to implement a particular procedure to improve compliance and the firm blocks it?

If an employee is to be the COLP, rather than a partner in the firm, they might wish to consider obtaining an indemnity from the firm, although an indemnity is unlikely to protect against all sanctions the SRA could impose.

Which failures to comply require reports to the SRA? “This remains unclear at present. If all failures require reporting, the COLP and the SRA will be kept very busy indeed.”

She said: “Ultimately, the role will need to be a high-level appointment to ensure that the culture of compliance and management of risk is taken seriously. If firms embrace a risk management culture, the COLP’s life will be a much easier one. Without this, the firm might well find itself on the SRA’s radar and subject to relationship management at best or disciplinary action at worst.”

Weightmans is to launch a COLP helpline to aid those taking on the new role.

2 Responses to “Call for clarity over compliance officers that all firms need to appoint this year”

This is a really interesting set of questions. It seems to me the first and last of the bullet points are the most important. Isn’t it consistent with outcomes focused regulation that firms take their own view as to what constitutes reasonableness?

If a COLP recommendation is blockedmy instinctive reaction is that would be a reasonably obvious point at which a report would be made? Unless of course the COLP is persuaded that the firm is right and they were wrong.

The precedent for COLP and COFA and for Outcomes Focused (= Principles based) regulation generally, is the FSA, which insists that the firms which it regulates appoint controlled function holders with responsibility on behalf of firms’ management for defined regulatory functions. Appointees need to have internal authority to demand compliance commensurate with their responsibility to the regulator and in my view they are essential to the orderly running of law firms on a commercial basis. However, as Simon Morris of CMS Cameron McKenna commented in Professional Adviser magazine last September “Telling the regulator you relied on the compliance team to manage risk is not good enough. Now, when the FSA investigates a firm it includes the CEO, the Chairman, the Managing Director and all the senior management”. The controlled function holder is simply the representative of management.

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